Landlord and tenant — Tenancy at will — Use and occupation — Valuation — Failure of negotiations to grant lease of commercial premises — Value of use and occupation — Whether rent agreed for proposed lease best evidence of value of use and occupation — Whether value tenant at will actually obtained relevant
In November 1985 the respondent council set out in a letter the
terms upon which they were prepared to grant a lease of a property to the
appellant. The letter was headed ‘subject to contract’ and ‘without prejudice’
and offered a 15-year lease at a rent, set for the first three years at £2,900
pa. The appellant signed a copy of the letter accepting the terms. The
appellant wanted to use the property as a builder’s yard and applied for, and
was granted, planning permission for that purpose. The appellant went into
occupation without the grant of any lease. A further offer to grant a lease was
made in June 1991 in a letter also headed ‘subject to contract’ and ‘without
prejudice’. Although the appellant signed a copy of this letter as well, he shortly
afterwards gave up occupation. As he had not paid anything for his period of
occupation, the council brought proceedings claiming compensation for use and
occupation from 1987 to 1991, at a rate of £2,900 pa. In the court below, the
judge accepted that the best evidence of the value of the use and occupation
was what the parties themselves had agreed in 1985 and 1991, namely £2,900 pa.
The appellant appealed, contending that the value that he actually obtained was
only as a tenant at will of a derelict or semi-derelict property without
improvements, whereas the figure of £2,900 pa assumed a 15-year lease that
would have given security to a tenant to carry out improvements; it was the
value of what the appellant had had that must be assessed. The council
cross-appealed, arguing that there should have been no deduction for the
expenditure that the appellant incurred on the property.
The appellant’s interest in the property was not valueless to him.
What was required of the trial judge was an assessment of whether the agreed
figure of £2,900 pa contemplated a situation sufficiently different from what
the appellant in fact obtained, that it was not a true guide to what a
candidate in the open market would pay. The trial judge was justified in taking
the agreed figure of £2,900 pa. No allowance for a rent-free period should be
made as this had never been agreed. The trial judge should have made no
deduction for the appellant’s expenditure on the property.
The following cases are referred to in this report.
Ministry of
Defence v Ashman (1993) 66 P&CR 195; [1993] 2 EGLR 102; [1993]
40 EG 144
This was an appeal by
William Damian Augustine Masterson against a decision of Judge Welchman in
Woolwich County Court in proceedings by Lewisham London Borough Council for
compensation for the use and occupation of property.
James Roberts (instructed by Thornton & Co, of St Anne’s)
appeared for the appellant; Christopher Heather (instructed by the solicitor to
Lewisham London Borough Council) appeared for the respondents.
Giving judgment, BUXTON
LJ said: This is an appeal from a judgment of Judge Welchman, delivered in
Woolwich County Court on 4 December 1998, in proceedings between Lewisham
London Borough Council as plaintiffs and Mr William Masterson as defendant.
The action was to recover payment for Mr Masterson’s use and
occupation, for over five years from 1 July 1987 to 11 November 1992, of an
area of land owned by Lewisham. From the end of 1985 until 1992, it had been in
the contemplation of the parties (with a greater or lesser degree of interest
being shown by them) that the defendant would, or might, enter into a 15-year
lease of the land.
The land had at one time been a coal yard, and I will refer to it
as ‘the yard’ even though it may not have been recognisable as a yard at the
time when the proceedings took place. In 1985 it was in a derelict or
semi-derelict condition. The defendant was a general builder who wanted the
yard for the purpose of storing equipment, and otherwise (as I understand it)
turning it into something that would be recognisable as a builder’s yard. In
1985 he contacted Lewisham and had discussions with a Miss Monaghan. Miss
Monaghan was then employed on a trainee basis by Lewisham, but was authorised
by Lewisham at least to have those discussions. Mr Masterson told her that he
would be interested in renting the yard as a builder’s yard for the storage of
machinery.
Following that meeting, the borough valuer wrote to Mr Masterson setting
out the terms upon which Lewisham would be prepared to grant a lease. That
letter was dated 25 November 1985. It was headed ‘Subject to contract’ and
‘Without prejudice’, and said that the borough valuer would be prepared to
recommend to his authority that Mr Masterson should be granted a lease of the
yard. The letter set out various proposed terms and conditions. Of those, the
more important were:
1. The lease is to be for a term of 15 years commencing at a date
to be agreed, with upwards only [rent] reviews at the end of every third year.
3. The rent for the first three years is to be £2,900, per annum
exclusive of rates.
5. The lease is to be on a full repairing and insuring basis.
7. The lessee is to be responsible for clearing the site and will
within two months of commencement of the lease erect a fence to a design
approved by the Borough Valuer, along the boundary of the site.
There were a substantial number of other provisions, including a
provision that the lessee was to install gates in a position approved by the
borough valuer. He was also to be responsible for obtaining any necessary
planning permission. Mr Masterson signed at the bottom of that letter that he
accepted the terms and conditions of that lease.
I interpose to say that it was no doubt understood that Mr
Masterson was going to use the site as a builder’s yard. Indeed, the letter
provided in para 13 that the site was to be used solely for that purpose. But I
would say now, because it is of some importance later in this judgment, that I
do not interpret this letter as imposing any obligation on
Mr Masterson, or as envisaging that the lease would impose any obligation on Mr
Masterson, actually to operate the site as a builder’s yard. In other words, it
was not that Lewisham wanted there to be a builder’s yard in that position,
although no doubt they were glad that there was going to be; rather that Mr
Masterson wanted it for himself and Lewisham were content that that should
happen.
Mr Masterson thereafter applied for planning permission for the
site to be used for storage and for the erection of an office and of the fence
and gates. That permission was given, again by Lewisham (on that occasion
acting as planning authority) in May 1986.
In December 1986 there was a further meeting between Miss Monaghan
and Mr Masterson, in which Mr Masterson raised the question of his being given
some sort of allowance or consideration because of the sum that clearing the
site would cost him. Miss Monaghan’s note of that meeting recorded that there was
a good deal of rubble and other matter on the site, but also recorded that she,
at that time, did not agree with Mr Masterson’s estimate, apparently put
forward at that meeting, that it would cost £2,500 to take the rubble away.
There were what I can only describe as desultory exchanges between the parties
thereafter, with some correspondence from the borough regretting that the
matter had not been pursued. The matter then dragged on until 1991 with Mr
Masterson on the site, clearly in occupation of it and having put in hand, as
was his case, some part of the work of clearance.
The borough seem not to have known in 1991, until they made
inquiries, whether Mr Masterson was still there or not. However, officials
within the borough then became interested in the question. From the
correspondence, they were clearly, and properly, concerned that something
should, if possible, be resolved. There was further discussion. Following a
meeting with Mr Masterson, a further letter was sent by the borough in June
1991 to Mr Masterson. It was again headed ‘Subject to contract’. That letter
said that Lewisham’s officials continued to be prepared to grant a lease on the
basis of the terms agreed in November 1985; that is the letter I have already
referred to. The lease was, as set out in the 1991 letter, to be a lease for a
term of 15 years from 1 July 1987; the rent, as originally agreed, was to be
£2,900; and the first rent review was to take place on 1 July 1992. I interpose
to say that the borough, clearly appreciating that the three-year rent review
period had now passed so far as a lease starting in 1985 was concerned,
stipulated that rent reviews after 1992 should be at three-year intervals.
Various other matters were mentioned, which I need not go into, about problems
of access to the site. Mr Masterson signed at the bottom of that letter that he
accepted the amended terms and conditions of that lease. That is how the matter
stood in June 1991.
I take up the way in which the matter developed. We were shown some
correspondence and evidence put forward by Mr Masterson in which it became
clear that the relationship between him and Lewisham had either drifted or
fallen apart, the reason for the failure to carry through and sign the lease
being a matter of some controversy to which I shall have to return. The judge,
however, said at p10 of his judgment, a passage, again, to which I shall have
to return:
Ostensibly the cause of the breakdown in negotiations was in fact
that the Plaintiff was only prepared to offer a 10 month rent free period and
was looking for payment for use and occupation from 1987 onwards [not, I
interpose, 1985]. I find that by 1992 the Defendant had essentially lost
interest in the yard and perhaps was unable or indeed unwilling to pay for past
use.
In the event, Mr Masterson left, as far as I can see, effectively of
his own free will, although Lewisham did obtain a notice to quit to require him
to leave if he was not minded to do so voluntarily.
As I have said, Lewisham now claim on a use and occupation basis,
valued at the rate of £2,900 pa, for the period from 1987 to 1991. The judge
ruled as follows at p12 of his judgment:
In this case the best evidence of what this land was worth comes
not so much from the experts and I say that with no disrespect to them but from
what the parties agreed between themselves and particularly having regard to
the fact that the figure of £2,900 was agreed in 1985 and again in June 1991.
The judge then referred to the two letters that I have already
quoted. The judge continued:
Given the period of time that elapsed, while this matter was
quiescent and the plaintiff slumbered, it may well have represented something
of a bargain as far as the defendant is concerned. Nevertheless, it still
represents the best evidence. This was by no means a prime site. The conclusion
that [I] come to is that from the £2,900 [and I interpose that the judge
clearly meant, from his following words, ‘from the total payment on the basis
of £2,900 per annum’] should be deducted the costs of doing what I will call
the essential work to make the yard usable by the defendant. That being so I
deduct £2,900 from the £15,561.40 that has been claimed.
The judge valued use and occupation in the sum of £12,661.40. The
experts to whom the judge referred were two expert valuers, called respectively
by each party, who were persuaded to give evidence ostensibly about the value
of the land or Mr Masterson’s interest in it, and also about the proper cost of
clearing the site. All those are matters to which I shall have to return.
In this appeal, Mr Masterson, in a case that has been vigorously
and resourcefully put on his behalf by Mr James Roberts, says the following:
1. The judge was wrong, when valuing the interest in the land, to
give weight to the agreement between the parties. That was because the
agreement was not a concluded agreement and, in any event, what it contemplated
was a 15-year lease. That was something quite different from the tenancy at
will, which was all that, in the event, Mr Masterson had had and was what was,
in fact, being valued.
2. That consideration was particularly relevant when the site, as
in this case, was not usable without improvement. Mr Masterson would only have
been prepared to do the works to improve the site that he did if he had had in
prospect the benefit of a 15-year lease. Those works would not have been done
as a tenant at will and therefore, for that reason also, the £2,900 valuation
on the tenancy at will was inconsistent with the facts.
3. However, if the judge had been entitled to act on the basis of
the agreement and to take it into account, he should, by the same token, have
taken into account the rent-free period that the parties (or at least Mr
Masterson) saw as a necessary condition of that agreement.
4. The proper approach was not to use the agreement at all, but to
look at the value of the interest that Mr Masterson had in fact obtained — that
is to say, his tenancy at will — and to look at it as what, in the 19th
century, would have been a jury question, and was so referred to in a number of
19th century cases, but what is now in the 20th century an issue for the judge
assisted by expert evidence.
That submission was reinforced by Mr Masterson’s contention,
conceded by Lewisham, that no other person had been interested in the site; and
by the contention that the evidence before the judge, including that of Mr
Gobel (the expert called by the council), was that it was unlikely that anyone
else would take on the site without a lease but with an obligation to pay rent
and to carry out the works. That meant, said Mr Roberts, that the council would
not have found anyone else other than the defendant to do what he did; that is
to say, to improve the site at his own expense. Further, he said — and this was
a separate point, though linked to that which I have just set out — the
unimproved site was in fact of no value to Mr Masterson. It was also contended
that, in the event, he obtained no value from the site; because his preparatory
works were not sufficiently advanced, he had not, in the event, used the site
for the purpose that he had in mind.
On that latter basis, in particular, it was argued that, since the
site was of no value in that sense to Mr Masterson, its occupation value or,
alternatively, the value to him of his occupation of the land, was nil. The
judge therefore should not have awarded Lewisham anything at all for use and
occupation value. Lewisham argued in reply that the judge had in fact been
right in his reliance on the agreement, but he had been wrong to make the
deduction that he did because of Mr Masterson’s clearance work on the site. To
that latter point, Mr Roberts replied that, on the judge’s reasoning, the
allowance that he said that he was making for site clearance costs was in fact
a proxy (that is not the word that was used but that was the meaning) for the
rent-free allowance that had, in the exchanges between the parties, always been
seen as a recognition of the costs of site clearance. On that basis, the judge
had come to a wrong figure, inconsistent with Lewisham’s own evidence, as to
the cost of the clearance.
Mr Roberts helpfully summarised the principle upon which he relied,
and the way in which it applied in this case so far as the main argument is
concerned, as follows. He said that the basis of valuation is the value of the
piece of land as it is actually offered to the occupier on the actual basis
upon which it is offered. Here, the basis upon which the land was offered to
the occupier was a tenancy at will of a derelict or semi-derelict site. Therefore,
the evidence that the judge should have acted upon was the expert evidence as
to what would have been paid by a willing occupier for a derelict site on the
basis of his having only a tenancy at will. That, as I have said, was something
very different from what had been agreed between the parties.
Mr Roberts reinforced that argument by saying that the principle of
valuation for use and occupation was now seen to be a principle of restitution.
He took us to the judgments in this court in the case of Ministry of Defence
v Ashman [1993] 2 EGLR 102*, and, among other passages, to some
observations of Hoffmann LJ. Ashman was a holding-over case that, in
other respects, Mr Roberts said, was an uncertain guide for the valuation of a
case such as this, which is an entry case, not a holding-over case. But I
understood him to say that Hoffmann LJ’s general analysis of use and occupation
valuation was of assistance. Hoffmann LJ said at p105C:
A person entitled to possession of land can make a claim against a
person who has been in occupation without his consent on two alternative bases.
The first is for the loss which he has suffered in consequence of the
defendant’s trespass. This is the normal measure of damages in the law of tort.
The second is the value of the benefit which the occupier has received. This is
a claim for restitution. The two bases of claim are mutually exclusive and the
plaintiff must elect before judgment which of them he wishes to pursue. These
principles are not only fair but, as Kennedy LJ has demonstrated, also well
established by authority.
It is true that in the earlier cases it has not been expressly
stated that a claim for mesne profit for trespass can be a claim for
restitution. Nowadays I do not see why we should not call a spade a spade. In
this case the Ministry of Defence elected for the restitutionary remedy. It
adduced no evidence of what it would have done with the house if the Ashmans
had vacated. In my judgment, such matters are irrelevant to a restitution
claim. All that matters is the value of benefit which the defendant has
received.
* Editor’s note: Also reported at [1993] 40 EG 144
That, if I may respectfully say so, is no doubt so. But it still
leaves the question of how that valuation is to be arrived at.
The benefit that the defendant has received will, in a use and
occupation case, be exactly that — the ability to use and occupy the premises.
That is what the judge found in this case. I go back to p10 of the judgment,
where the judge set out the view he had formed, having had the benefit of
hearing Mr Masterson give evidence before him. He said:
The view I have formed having heard the defendant is that he was
essentially a practical man who ran a relatively small business. He made a
living by virtue of his ability to respond to the immediate needs of his
clients. He never had the resources human and financial to embark on long term
operations. The impression I formed was that he lived essentially from job to
job and could not have invested heavily in the yard without some immediate
benefit or return. It may well be that the yard did not prove to be as
advantageous/profitable as he had hoped. Plainly, if it had been highly
profitable it is likely that he would have entered into a lease in 1992.
Ostensibly, the cause of the breakdown in negotiations was the
fact that the plaintiff was only prepared to offer a ten month rent free period
and was looking for payment for use and occupation from 1987 onwards. I find
that by 1992 the defendant had essentially lost interest in the yard and
perhaps was unwilling or unable to pay for past use. However, between 1987 and
1992, in my judgment, the defendant got substantially what he bargained for. He
wanted the land for use in connection with the conduct of his business and at
all times knew that
The work that needed doing was the erection of a fence and some site clearance
and possibly some work in connection with the drainage of the site.
In view of that, and looking at the case more generally, it is, in
my judgment, simply not right, even taking Mr Masterson’s case at its highest,
to say that his interest in this land was, in any proper sense, valueless to
him. When the cases speak of value to the tenant, they do not mean commercial
value, but, in a world of free bargaining, the value of the occupation that the
tenant has chosen to enjoy. That is why, as Hoffmann LJ said shortly after the
passage that I have just quoted from him in Ministry of Defence v Ashman,
open market value would ordinarily be the appropriate test of valuation. The
Court of Appeal in that case did not say, and it is not the law, that (as Mr
Roberts put it in closing) the question of the value of the occupation to this
tenant (meaning, as I understood it, the commercial value) was the use that, in
fact, he put the property to. In the event that Mr Masterson’s occupation was
not fruitful commercially, that was nothing to the point — as, indeed, the
judge said and emphasised. Nor was the value diminished by the fact that he had
to do the works. As I have already said, apart from the erection of the
boundary fence, it was, after all, under the proposed lease (and still more
under his tenancy at will) a matter for him whether he did the works or not.
Lewisham were no doubt glad, as a local authority, that he was creating a
business on part of their land, but that that should occur was not a condition
of the lease or a condition of occupation.
The question, therefore, is whether the judge was right to take the
£2,900 agreed between the parties as the worth of the occupation to Mr
Masterson. Mr Roberts argues that that figure must be irrelevant because it
related to a 15-year lease, which Mr Masterson had not obtained. He submits
that the question is rather what would have been the value of a different
interest; that is to say, a tenancy at will. That argument, in that stark form,
cannot, of course, be right, because it would mean that in no case could an
agreement, even a previous lease in a holding-over case, be seen as relevant.
That view was not argued in, for instance, Ministry of Defence v Ashman,
among many other cases, and it would be quite inconsistent with the approach of
the court in that case. Mr Roberts, appreciating that, reformulated the
argument so as to say, as I have already set out, that, on the facts of this
case, the tenancy at will was of a derelict site that needed improvement, and,
in those circumstances, only a 15-year lease, giving security against that
improvement, would be contemplated. Because of that need for security as a
basis for doing the works, the value under that lease was quite different from
a value under a relationship where there had been no security.
I am not certain whether the argument was put in quite that way to
the learned judge. However that may be, what was required was an assessment by
the judge of whether the agreement figure contemplated a situation sufficiently
different from what Mr Masterson in fact obtained, that it was not a true guide
to what the only candidate in the open market assessment was prepared to pay.
In my view, the judge was well justified in these circumstances in taking the
agreement figure. This was not a sophisticated transaction, and the judge was
right to find, in the passage I have already read, that Mr Masterson got what
he bargained for.
Such a conclusion is strongly reinforced by the fact that Mr
Masterson signed agreements contemplating a rental of £2,900, not only in 1985
but also when he had been in occupation for some six years in 1991. There was
no reason for him to think, and no evidence that he thought, that if he had
wanted to enter into the lease it would not have been available to him. That
does not mean that the £2,900 was agreed on the basis of an expectation of the
lease being granted. Rather, it shows, particularly in relation to the 1991
agreement, that Mr Masterson was in principle prepared to pay £2,900 pa for the
opportunity to develop his business, but eventually made up his own mind not to
develop that business and thus not to take the 15-year lease that remained on
offer to him. As the judge found, and, on the evidence shown to us, as was
plausible, by the end of 1992 Mr Masterson had essentially lost interest in the
yard.
The agreed £2,900 was, of course, not for the same interest as is
now being valued. Of necessity, that will be the case in every use and
occupation case. But it was for an occupation that the judge found was
essentially that which Mr Masterson sought under the proposed lease and it was
reasonable, therefore, to value it on the basis of the value provisionally
agreed for that lease.
I turn to the other two questions in the case. On a plain reading
of the judgment, the judge did not make a deduction because of any agreement or
assumption about a rent-free period. His deduction was simply and directly to
compensate Mr Masterson for his expenditure. The judge was right not to act on
the basis of a rent-free period. Nothing was ever agreed about such a period,
much less about how long it should be. Also, Mr Masterson willingly signed the
1991 letter, in which such a term did not figure. It is quite impossible,
therefore, in my judgment, to say that the figure of £2,900 pa was contingent
on there being a rent-free period in the lease; as would, in my view, be
required if that point were to prevail. Since the judge’s deduction was not in
respect of the rent-free period, agreed or otherwise, I find it impossible to
find any other basis upon which it could be imposed. Lewisham were under no
obligation to compensate Mr Masterson for doing works, any more than Mr
Masterson was under any obligation, other than to erect the fence, to do
anything for Lewisham, as opposed to acting in pursuit of his own commercial
interests.
In my judgment, therefore, the appeal in this case fails and the
cross-appeal succeeds. I would discharge the order of the learned judge below
and substitute for it a judgment for the whole of the £15,561.40 that was found
by the judge to be the value of the use and occupation before any deduction.
Agreeing, MORISON J said: I agree. I add a note
of my own, simply out of respect for Mr Roberts’ arguments. I agree with the
trial judge that the figure of £2,900 represents the true annual value of the
prospective tenant’s use and occupation of the land. It was a figure he agreed
in 1985 and again in 1991. Mr Roberts’ primary argument was that the value of
the use and occupation should be coloured by reference to the fact that,
subsequently, the parties could not agree terms of the proposed lease, and
therefore the prospective tenant had throughout held merely as a tenant at
will. I see no reason, in principle or in common sense, why the value of the
use and occupation should vary according to whether the lease was ultimately
executed or not. It was, I think, implicit in the arrangement between the
parties when the prospective tenant was allowed into occupation while
negotiations took place, that he would pay to Lewisham £2,900 for each year of
occupation from the outset, since the lease was intended to operate as from the
date when he entered into occupation. The parties had, therefore, in my
judgment, reached a bargain that valued the use and occupation at £2,900 pa. I
agree with the order proposed by my lord.
Supplementary judgment on costs
BUXTON LJ
said: Such order as to costs as we make in this case will be on the ordinary,
not on the indemnity, basis. The reason for that is that, although we consider
we have jurisdiction under the parts of the rules that have been referred to us
to make an order for costs on an indemnity basis, we do not think it right or
just to encourage the giving of this sort of notice at a time that, although it
does leave time for consideration and acceptance, puts the other side under an
unnecessary amount of pressure, both to make decisions about whether to accept
or not, and also to work out the procedure that it is necessary to follow in
order to avoid the problem about costs. Had this offer been made when the
appeal was already on foot, but further away from the hearing, we would not
take the same view.
Appeal dismissed, cross-appeal allowed.
